Campaign finds a happier Wall Street

GregMorcroft

NEW YORK (CBS.MW) - As the presidential campaign enters the home stretch, happy days may be here again on Wall Street.

Renewed hiring has companies competing for workers, firms are reporting improved earnings, and fears of an ailing bond business have been quashed by recent good news from two of the Street's biggest bond firms.

How much the Bush White House has contributed to this improvement is under debate, but Bush-sponsored legislation, such as lowering taxes on capital gains and dividends, certainly has boosted revenue on Wall Street and fueled industry support for the president. See full story.

After a major bloodletting in which the U.S. securities industry lost 83,100 employees or about 10 percent of its workforce, between its peak in March 2001 and its low point in May 2003, things are now looking up.

In the 11 months following the May 2003 low, the industry added 20,100 new jobs, a 2.7 percent increase from its low, and almost a quarter of the jobs lost in the layoff binge.

And, recent data showed an almost 1 percent jump in employment at Wall Street firms in the first few months of this year, over the same period a year ago.

"During the first four months of 2004 alone, the U.S. securities industry added 6,500 jobs, or a 0.8 percent increase in employment. In sharp contrast, the industry lost 10,900 jobs, or 1.4 percent of its workforce, over the same period last year," according to the latest data from the Bureau of Labor Statistics.

Nothing lasts forever

Bear Stearns
BSC, +0.13%
and Lehman Bros.
LEH
both reported strong earnings recently, led by a bond business that so far has proven mostly immune to fears of a rising interest rate trend.

"Even though you may see the fixed income side is a little weaker this year, it's been carrying the industry during the downturn in the equity market, said Frank Fernandez, Senior Vice President, Chief Economist and Director, Research of industry trade group the Securities Industry Association (SIA).

The latest results from Bear and Lehman are encouraging, because they show not only that the fixed income business didn't fall off a cliff, but that they remained firm even as other parts of the business strengthen.

"Beginning late in the third quarter and probably in the fourth quarter and then the first quarter of this year we started to see the revenue growth in virtually every product line we have. We're firing on all cylinders; before we just had one or two that were working for us," SIA's Fernandez said.

The climate for brokerage firms shifted in the early months of 2004, as expectations for continuing low interest rates turned less sanguine after a stronger April employment report, strong retail sales and the Consumer Price Index data all caused investors to ramp up their prediction for rising interest rates.

While the market dropped sharply on such fears, it's recovered a bit since, although Wall Street firms admit the fixed income game is likely in the late innings.

"We're looking for fixed-income origination to be down about 15 percent [from its year-ago level]," Lehman Brothers' CFO David Goldfarb added. "If we are right, there will be some decrease in the secondary markets, but less than the issuance market."

On the equity side of the business, investors are more optimistic about stocks, and that's contributing to a healthy growth in the initial public offering backlog.

IPOs have been pricing weakly of late, but there's still demand out there for companies offering established earnings and growth.

Globally, 419 IPOs debuted in the first half of the year, with proceeds of $41 billion, more than twice the year-ago figure of 194 deals raising $6.2 billion, according to Dealogic.

The market is expected to shift into a higher gear in the second half, with household names like Domino's Pizza, Morningstar and Google debuting their shares.

"We have one of the strongest IPO pipelines we've seen in years," Fernandez said. "The pipeline is full all the way out until the fall."

Merger and acquisition activity also climbed significantly in 2004.

"Year-to-date we have seen a pickup in activity from strategic buyers and we expect that to continue," Lehman's Goldfarb said.

And the industry has diversified over the last few years, further helping smooth out earnings in a traditionally volatile sector.

Employment rising again after drought

April saw a small dip in employment among Wall Street firms, but government data still show a net gain of about 800 jobs during the two-month March and April period. That's due to an upward revision, to 1,800 new jobs from the initially reported 800 in March.

"We believe April's preliminary figure will also be revised upward as more firms report their actual employment numbers," the SIA said in a recent report.

The 11-month long upward trend in industry jobs now has some people talking about a bidding war for Wall Street talent.

"The whole street is kind of shifting into hiring mode ... there is certainly more competition for talent," Bear Stearns CFO Sam Molinaro said in a recent conference call with analysts and investors.

But New York state, long the home to the largest percentage of securities industry workers, is lagging.

According to the Bureau of Labor Statistics, New York State shed 400 securities jobs in April following three months of modest gains. The state now is home to about to 176,600 securities jobs, roughly stagnant over the last 8 months.

"From its peak of 216,700 in December 2000 to its recent trough of 174,400 in April and May of 2003, statewide securities industry employment fell 42,300, or 19.5 percent. Since then, New York added a mere 1,200 jobs to its securities industry workforce, a 0.7 percent increase," the SIA said.

Perhaps more telling than the last few years of data, while the state still accounts for 22.6 percent of all industry jobs, the number of net new securities industry jobs created in New York since the 1987 stock market crash through April 2004 is only 0.9 percent of the number created in the other 49 states -- 2,900 versus 318,700.

"Outsourcing for us isn't to India, the SIA's Fernandez said. "It's to New Jersey.

New York voters handily backed 2000 Democratic contender former Vice President Al Gore in the last presidential election, with 60 percent voting in the Democrat column. If job statistics are any hint, the state's Democratic leanings aren't likely to change come this November.

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